“Norway will become poorer,” OECD says
Norway could lose two-thirds of oil wealth
Sarah Bostock & Michael Sandelson
The Organization for Economic Cooperation and Development lists challenges for the Scandinavian country in its 2016 Economic Survey of Norway. Recent economic developments, policies, and prospects, as well as an insight in higher education, agriculture, and rural policy are examined in the report.
OECD Director Bob Ford talked about the Sovereign Wealth Fund in his speech at the presentation of the report. He highlighted that the SWF has acted as a buffer against worse economic times and a falling oil price, reported NRK.
“But the oil price drop means that Norway will become poorer, and we will have structural budget challenges in the years ahead,” he said.
Oil prices have declined rapidly over a short period, as have additional tax revenues from the oil sector, with a decrease of over 38 percent during the last 12 months. Since 2014, oil prices have constantly been on the decline, dropping from USD 110 per barrel to under USD 30 per barrel now.
“Norway has very high material living standards and scores well on other aspects of wellbeing, thanks to a mix of natural resources wealth, good policy making, and inclusive and egalitarian social values,” says the OECD. “[…] However, the substantial oil-price falls since 2014 have been a reminder of Norway’s exposure to external risks and consequently the importance of a flexible and competitive mainland economy.”
An analysis conducted by business daily Dagens Næringsliv shows that Norway could lose two-thirds of her estimated oil wealth if per-barrel prices hold at low levels.
Last autumn, the Ministry of Finance estimated that the value of oil not yet extracted was NOK 4,200 billion (some USD 425 billion), of which 89 percent belongs to the State.
Officials’ oil wealth calculations are based on a per-barrel oil price of NOK 440 in 2016, NOK 465 in 2017, and NOK 540 from 2018 onwards (some USD 49.7, 52.5, and 61, respectively).
It is also estimated that the value of Norway’s oil wealth would be reduced from NOK 4,200 billion to NOK 2,500 billion (about USD 282.57 billion) if prices per barrel were NOK 100 lower than thought and gas prices were reduced accordingly.
But the per-barrel oil price is currently roughly NOK 160 lower than the Ministry’s original calculations. If this difference continued, Norway’s oil wealth would then shrink to NOK 1,480 billion (about USD 167.28 billion)—one-third of what Finance Minister Jensen estimated last autumn.
Deputy Minister of Finance Paal Bjørnestad commented that “there is little doubt that sustained lower oil prices will eventually have consequences; we will be less rich than we thought.”
“This of course means that we will be putting smaller earnings into the [Sovereign Wealth] Fund and the growth in our expected real return will be smaller.”
The OECD 2016 Economic Survey of Norway was handed to Minister of Finance Siv Jensen on Jan. 18. “The Norwegian economy is heading towards a new normal. The economic prospects are different than we have been accustomed to over the last 10-15 years. The steep fall in oil prices reinforces the turnaround,” she remarked about the report.
The full survey can be found at www.oecd.org/norway/economic-survey-norway.htm.
It also appeared in the Jan. 29, 2016, issue of the Norwegian American Weekly. To subscribe, visit SUBSCRIBE or call us at (206) 784-4617.